On Orrick’s Merit-Based System: A Chat With Ralph Baxter

A couple of recent items got us thinking about associates and merit pay.

First, we came across a piece by the American Lawyer’s Julie Treidman, the title of which — “Associate Pay Cuts Here to Stay, Say Firms, Analysts” — seems to say it all.

Treidman writes that even those who haven’t yet made changes to their associate salary structures are nevertheless eyeballing them — especially those that have jettisoned a lockstep pay system for one based more on merit. She writes:

[Dewey & LeBoeuf chairman] Stephen Davis and three others in firm management who spoke with us say they are closely watching new associate compensation models like the one announced last week by Orrick Herrington & Sutcliffe: a tiered system in which advancement is merit-based.

Following up on Treidman’s piece, Elie Mystal at Above the Law penned the following, expressing a hedged but real sense that the Orrick model could become the wave of the future:

If the Orrick system allows the firm to keep profits per partner high, and the firm doesn’t lose its rising superstars, and the firm doesn’t get slammed in recruiting, then we are looking at the new Biglaw associate compensation model . . . .

And all this buzz got us thinking about how Orrick’s new system is going.

A quick overview/recap: Back in July, Orrick introduced a new system for categorizing associates, comprised, at the most general level, of two tiers: the “partner” track for gunners and the “career attorney” track for those who will focus on more mundane work, such as document review.

But there’s more. The partner-track category is broken into three sub-groups: from lowest to highest: the associate, the managing associate and the senior associate. In July all associates at the firm were slotted into one of these three camps, based not on seniority, but on merit.

Earlier this month, the firm rolled out the 2010 salary structure for each of the partner-track associate categories.

Given the press, and given that the firm’s been at this for almost a half-year, we decided it was high-time to check in with the firm to find out how it’s all going. We caught up with firm chairman Ralph Baxter as he was boarding a plane. (We swear we have more conversations with lawyers who’re in airports and in about-to-takeoff planes than anywhere else.)

Hi, Ralph. So how’s it working out?

It’s too early to tell on that. The key, I think, is that there’s a general sense that we’re all in this together. But it’s a fundamental change and I think just how well it works will become more obvious over time.

But in my opinion, the virtues of the program are self-evident. We’ve articulated benchmarks to the associates, told them what it takes to move from one category to another. I have no doubt that this is going to build better careers for the associates. They’ll be more rewarding and the associates will be more in control of their careers.

I also think the associates’ interests will be more aligned with client interests, too. We’re no longer asking clients to pay associates more simply because they’re a year older. We’re really trying to get away from time-based billing.

How’s the associate reaction been?

I guess the word I’d use is that it’s been constructive. Look, this is change. Change is hard for anyone and everyone. They’re working through it. I think they recognize that there’s a need for change and that they appreciate that we’ve taken something like this on.

The entire profession is in the midst of a real paradigm shift, so all the associates have some level of anxiety over how things are going to play out for them.

Is there a sense that associates feel more pressure to perform?

Well, first of all, let me say that I think we as a firm have taken on a responsibility. We’re providing feedback and training that really didn’t exist at law firms a decade ago. The real question will be whether over time we’re able to live up to this responsibility. It’s much harder, after all, to give meaningful feedback than it is to give each associate a printout [with a more cursory evaluation.]”

On that point, I’d say that the the scrutiny really isn’t ramped up. The reality is that I think for most associates, this is what they would have hoped for — to be evaluated in a way that’s meaningful and helpful.

Over at ATL, Elie Mystal quipped Friday that the entire industry was watching you — to see whether you guys sink or swim with this. What do you say to another managing partner who calls and asks you whether they should implement something similar?

I tell them that all large firms need to reexamine their fundamental model. The market simply is not going to tolerate the inefficiency that was embedded in the industry up until 2008. Having said that, every firm has different demands. Each firm has to different demand. each firm has to find its own model that works.

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